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Missed Opportunity: What's Right and Wrong in the FERC Staff Report on the Midwest Price Spikes

Fortnightly Magazine - November 15 1998

regulators must acknowledge the urgent need to get rules in place, finish the work of deregulation and, until then, inform the public of the risks inherent during the transition period.

The public will ultimately benefit from deregulation. That fact gives all the more reason to understand and properly manage the precariousness of the current transition. Nearly all users lack hourly meters, remote control of load, explicit interruptible contracts, and hence, currently rely on utilities and regulators to act as their agents to obtain reliable power. They cannot yet legally participate in the markets. We owe them at least fair, impartial warnings about transitional risk, if not explicit protection.

Is it too difficult to imagine rolling blackouts, due to lack of generation? Skeptics should call Alberta or Colorado, where blackouts occurred this past summer, or Midwest power operators implementing emergency procedures last June.

Judah L. Rose is a vice president of ICF Kaiser International Inc., and a frequent contributor to Public Utilities Fortnightly.

1 Sept. 22, 1998.

2 Artificial price limits combined with partial deregulation would clearly be the worst of all possible worlds; generation shortages would occur as regulators rediscover supply and demand.

3 $7,000 per MWh ¥ MW ¥ 48hours=

1,000 KW

$336/kW per year

4 If circumstances were so unusual, why was this event forecasted? See J. Rose, "Last Summer's Pure Capacity Prices: A Harbinger of Things to Come," Public Utilities Fortnightly, December 1997, p. 36; J. Rose and C. Mann, "Unbundling the Electric Capacity Price in a Deregulated Commodity Market," Public Utilities Fortnightly, December 1995, p. 20.

5 Current procedure in MAIN, as described, is to use "peer pressure" to enforce planning reserve margins; peer pressure, not surprisingly, does not seem to be working.

6 Or voltage reductions or public appeals informing the public of the need for emergency customer self-curtailment.

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